Taxing trend: How the OBBBA is breaking the standard deduction reliance

By Justin Champlain

With the introduction of the One Big Beautiful Bill Act (OBBBA), the 2025 tax filing season has been an interesting one.

Living and working in the northeast, many of us are finding that clients are pleased with the new $40,000 SALT cap. Combined with several other changes, this adjustment appears to be breaking the standing pattern of taxpayers defaulting to the standard deduction.

For years, at conferences, in meetings, and across the industry, I have heard consistent commentary about the challenges retirees face from a tax perspective. Individuals in their 60s and 70s often lose access to many of the deductions they relied on during their working years, which adds a layer of concern around tax planning in retirement.

For example, many retirees have paid down or fully paid off their homes, eliminating the mortgage interest deduction. Their children, for the most part, have grown and become independent, meaning they can no longer claim dependents or the associated tax credits.

On top of that, the Tax Cuts and Jobs Act (TCJA) of 2017 basically eliminated the miscellaneous deductions subject to the 2% AGI floor. In addition, again under the TCJA, we saw the standard deduction nearly double. So, as a result, millions of taxpayers shifted to the standard deduction and many have never looked back.

Now here we are filing 2025 tax returns, having already navigated a number of pandemic-era tax changes during the Covid years. You may recall changes such as the enhanced child tax credits, stimulus payments, and PPP.

Then in July 2025, OBBBA hit, and has generated significant headlines. However, in my observation many advisors and clients have continued to assume that households previously taking the standard deduction will simply continue doing so as business as usual.

However, simply defaulting to the standard deduction could now be a costly mistake. In some cases, it may lead to paying significantly more tax than necessary. It could also lead to leaving room on the table when considering tax planning techniques such as Roth conversion and gains harvesting.

As an example, I recently worked with a couple who own multiple homes. Again, being based in the northeast, the SALT cap increase alone puts itemizing back on the table. Their total real estate taxes paid were approximately $21,000 for the year.

Interestingly, these clients also recently decided to relocate and pursue their dream retirement home in the Lakes Region. Although their financial plan easily supported paying cash for the new home using proceeds from the sale of their prior residence, we determined it might be more advantageous to finance the purchase and invest the proceeds instead.

This ideally creates long-term investment arbitrage while preserving liquidity. However, bring this back to their tax return we now also see this newly incurred mortgage interest appearing on their Schedule A.

These items were interesting but perhaps the biggest surprise was the return of medical deductions on their return. Fortunately, these clients are in good health and also fortunately these clients reached their financial goals ahead of schedule and retired around age 60.

Because they are no longer covered by an employer health plan and are not yet eligible for Medicare, their healthcare expenses are substantial. Their health insurance premiums, out-of-pocket medical costs, and even a portion of their long-term care insurance premiums (capped at $4,810 per spouse for MFJ in 2025) have all become deductible medical expenses on Schedule A (subject to the AGI threshold).

Of course, many taxpayers will still benefit from taking the standard deduction. For clients over age 65, the additional standard deduction of $1,600 per person—and potentially up to $6,000 per person through the enhanced senior deduction—can push the total standard deduction for a married couple up to $46,700.

In those cases, exceeding that threshold with itemized deductions may still be difficult.

Nevertheless, a key takeaway is it is always worth running the numbers. Advisors and taxpayers alike should be especially mindful of these new nuances related to OBBBA.

Taking a close look at real estate taxes, medical and other Schedule A deductions like charity and mortgage interest is key in optimizing, managing and reporting tax activity.

Justin is a Certified Financial Planner CFP® and Enrolled Agent (EA) and is the owner and financial planner of Champlain Financial Planning. Justin lives in Merrimac, Massachusetts, with his wife, son, dog, and horses.